The opinion of the court was delivered by: James T. Giles C.J.
Elliott Reihner Siedzikowski & Egan, P.C., ("ERSE" or "the firm") filed
this action on August 9, 2000, against the Pennsylvania Employees Benefit
Trust Fund ("the PEBTF" or "the Fund") and Thomas G. Paese ("Mr.
Paese"), former Secretary of Administration of the Commonwealth of
Pennsylvania and former Chairman and a Trustee of the PEBTF, in his
individual capacity, alleging violations of the First and Fourteenth
Amendments, protected through 42 U.S.C. § 1983, and, under state
law, for breach of contract and tortious interference with contractual
Count I of the complaint avers that the PEBTF and Mr. Paese improperly
refused to pay ERSE amounts earned under a written Fee Agreement, in
retaliation for ERSE's allegedly politically protected speech regarding
defendants' efforts to sabotage the PEBTF's own attempts to recover from
insurance companies that insured various Commonwealth unionized
employees, seventy million ($70,000,000) to eighty million ($80,000,000)
dollars of allegedly improperly diverted funds.
Count II, directed only against the PEBTF, alleges that the PEBTF
has breached the Fee Agreement, by refusing to pay the fee owed to
ERSE and by cheating ERSE out of its fee.
Count III, directed only against Mr. Paese, alleges that he
intentionally interfered with and induced the PEBTF's breach of the Fee
Agreement, without lawful justification or privilege.
Now before the court is the PEBTF's Motion to Dismiss Counts I and II
of the Complaint, and Mr. Paese's Motion to Dismiss Counts I and III of
the Complaint. For the reasons that follow, each motion is granted.
Consistent with the review standards applicable to a motion to
dismiss, the alleged facts, viewed in the light most favorable to
the plaintiff, follow.
The PEBTF is a jointly administered labor/management trust fund that
was created in October 1988 for the purpose of providing a full range of
healthcare benefits to approximately 85,000 unionized Commonwealth
employees and their dependents. In addition, the Fund also acts as the
third-party administrator for the delivery of healthcare benefits for
45,000 retirees, annuitants and their dependents. All together, the Fund
provides healthcare coverage to approximately 300,000 people.
The Fund grew out of a collective bargaining relationship between the
Commonwealth of Pennsylvania and several different unions representing
state employees, including American Federation of State, County, and
Municipal Employees ("AFSCME") Council 13, Pennsylvania Social Services
Union ("PSSU"), United Food and Commercial Workers ("UFCW"), the
Pennsylvania Nurses Association, and the Federation of State, Cultural &
The Fund is governed by an equal number of union and management
trustees. Seven Union Trustees are selected by the unions which maintain
collective bargaining relationships with the Commonwealth and whose
members receive medical benefits provided by the Fund. The seven
management or Commonwealth Trustees are appointed by, and serve at the
pleasure of, the Governor of Pennsylvania.
The Chairmanship of the Fund rotates over time between the Executive
Director of AFSCME, Council 13, the largest of the unions and the
Secretary of Administration of the Commonwealth of Pennsylvania.
The Trust is funded primarily by contributions made by the Commonwealth
of Pennsylvania in accordance with its collective bargaining agreements
with the various unions.
At some point, the PEBTF came to suspect that the Blues were
overcharging the Fund for the cost of these medical goods and services,
causing a substantial waste, diversion, and loss of taxpayer funds
entrusted to the Fund and its Trustees. (Compl. ¶ 18.) Such
overcharges were also adversely affecting Fund beneficiaries who were
required to pay portions of their medical costs in the form of
co-payments and deductibles. (Compl. ¶ 19.)
The PEBTF's contracts with the Blues gave it the right to audit the
insurers. The Trustees retained a firm, TH Services, to audit the Blues'
claims records for overcharges and other suspected improper billings.
(Compl. ¶ 21.) By examining the data that was supplied, and
employing its analytical methods, TH Services extrapolated that the Blues
had overcharged the PEBTF by at least $70 million over the term of the
audit period of four years, from 1988 through 1992. (Compl. ¶ 22.)
ERSE claims that, while refusing to turn over information for the
audit, the Blues also threatened to terminate health care coverage for
the Fund's beneficiaries. Faced with this resistance, the Fund decided in
September 1994 to retain counsel to sue the Blues. (Compl. ¶ 23.)
B. ERSE's Fee Agreement with the PEBTF
In December 1994, ERSE, pursuant to a fee contract, was retained as a
special litigation counsel by the PEBTF to pursue claims against the
Blues, who allegedly had over-billed the Fund over a course of years.
(Compl. ¶ 10.) Prior to retaining the firm, however, the PEBTF and
their outside counsel*fn1 attempted to have the Blues execute an
agreement to ...